Lenehan v Powercor Australia Ltd
[2020] VSC 82
•2 March 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
MAJOR TORTS LIST
S CI 2018 01290
| ANTHONY LENEHAN | Plaintiff |
| v | |
| POWERCOR AUSTRALIA LIMITED (ACN 064 651 109) | Defendant |
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JUDGE: | Nichols J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 16 December 2019 |
DATE OF JUDGMENT: | 2 March 2020 |
CASE MAY BE CITED AS: | Lenehan v Powercor Australia Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 82 |
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PRACTICE AND PROCEDURE – Court approval of costs of a representative proceeding – Modtech Engineering Australia Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 –Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663 – Petersen Superannuation Fund Pty Ltd v Bank of Queensland Limited (No 3) [2018] FCA 1842 – Supreme Court Act 1986 (Vic), s 33V – Whether costs claimed are reasonable in all the circumstances and proportionately incurred – Camilleri v The Trust Company (Nominees) Ltd [2015] FCA 1468 – Modtech Engineering Australia Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 – Downie v Spiral Foods Pty Ltd & Ors [2015] VSC 190 – Matthews v Ausnet Electricity Services Pty Ltd & Ors [2014] VSC 663 – Legal Profession Uniform Law (Vic), s 172 – Civil Procedure Act 2010 (Vic), s 24 – Invalid conditional costs agreements – Uplift fee – Whether an additional loading for skill care and attention can be approved – Legal Profession Uniform Law (Vic), s 182, s 185 – Supreme Court General (Civil Procedure) Rules 2015 (Vic), r 63.48 – Whether special grounds arise out of the nature and importance or the difficulty or the urgency of the case – Jenkins & Ors v G J Coles & Co Ltd [1993] 1 VR 155 – Supreme Court General (Civil Procedure) Rules 2015 (Vic), r 63.34.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T P Tobin SC with Mr A Fraatz | Maddens Lawyers |
| For the Defendant | No appearance |
HER HONOUR:
Introduction
On 29 October 2019, the parties reached a settlement of this proceeding conditional upon the Court approving the settlement, pursuant to s 33V of the Supreme Court Act 1986 (Vic). On terms including a denial of liability the defendant agreed to pay the plaintiff and group members the sum of $17,500,000, inclusive of interest and costs.
On 20 December 2019, I approved the settlement of the proceeding. That is, I approved the plaintiff’s entry into the settlement agreement. I did not on that occasion approve the plaintiff’s proposed scheme for the distribution of settlement moneys between group members, or the plaintiff’s solicitors’ application for costs. On 16 December 2019 I required further material to be submitted in respect of the proposed settlement distribution scheme. Separately, one aspect of the proposed scheme is the subject of an objection, which is yet to be determined.[1]
[1]By a direction made on 21 February 2020 the parties (the plaintiff and the insurers of certain group members who are objecting to one aspect of the proposed settlement distribution scheme) were required to file further submissions on the issue the subject of the objection, by 11 March 2020.
In this judgment I deal with the plaintiff’s costs.
The plaintiff has sought approval for the distribution between group members of the “compensation pool”, which is the settlement sum of $17,500,000 less three sub-sets of costs, namely “common benefit legal costs” which are the professional fees and disbursements incurred by the plaintiff’s solicitors (Maddens) in the conduct of the proceeding; “administration costs”, which are the costs incurred and to be incurred in administering the settlement distribution scheme; and a payment to the plaintiff in “reimbursement” of his time spent advancing the proceeding on behalf of group members. It is accepted that all claims to costs are subject to the approval of the Court.
For the reasons that follow, I approve the following costs:
Costs of the proceeding - professional fees inclusive of GST
$2,051,521.49
This amount does not include an allowance for skill, care and attention. As discussed below, an allowance should be made, but it requires further quantification and will be considered for approval after the receipt of a supplementary expert report (see paragraph 71 below).
Costs of the proceeding – disbursements inclusive of GST
$1,374,821.17
Costs incurred to 4 February 2020 in connection with the approval of the settlement and the administration of the proposed settlement scheme – professional fees inclusive of GST
$63,838.85
This amount does not include an allowance for skill, care and attention. As discussed below, an allowance should be made, but it requires further quantification and will be considered for approval after the receipt of a supplementary expert report (see paragraph 71 below).
Costs incurred to 4 February 2020 in connection with the approval of the settlement and the administration of the proposed settlement scheme – disbursements inclusive of GST
$159,773.38
Allowance to Mr Lenehan
$30,000
Total costs and allowances approved in this judgment
$3,679,954.85
I have not yet approved any anticipated costs in respect of the approval of the settlement or the administration of the proposed settlement distribution scheme.
Governing Principles
Section 33V of the Supreme Court Act 1986 provides that a group proceeding may not be settled without the approval of the court. In giving approval the Court may make such orders as it thinks fit with respect to the distribution of any money paid under the settlement.
The principles governing the approval of the costs of a representative proceeding are well understood.
The Court’s function in scrutinising a claim for costs by the plaintiff and his solicitors is protective. Group members ordinarily benefit from the legal work undertaken by the plaintiff’s solicitors in conducting and settling the proceeding and are typically required to pay a proportionate share of the plaintiff’s costs. However, they have no control over the costs incurred during the conduct of proceeding and the information available to them about costs (including information that would allow them to effectively scrutinise a claim for costs) is generally limited.[2] As Murphy J put it in Petersen,[3] group members suffer a significant information asymmetry in this regard.[4]
[2]Modtech Engineering Australia Pty Ltd v GPT Management Holdings Ltd [2013] FCA 626 (Modtech (No 1)), [27] and Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663 (Matthews), [349].
[3]Petersen Superannuation Fund Pty Ltd v Bank of Queensland Limited (No 3) [2018] FCA 1842 (Petersen).
[4]Petersen, [88].
The Court must be satisfied that the costs claimed are reasonable in all of the circumstances[5] and proportionately incurred.
[5]Matthews, [348]; Modtech (No 1), [32].
The proportionality measure looks to the relationship between the costs incurred and the value and importance of the subject matter in issue.[6] The requirement for proportionality as it concerns legal costs generally is expressed in s 172 of the Legal Profession Uniform Law (Vic) (the Uniform Law) and in s 24 of the Civil Procedure Act 2010 (Vic). It is a forward looking assessment which compares the cost of the work with the benefit that could reasonably be expected from the work, at the time at which the work was performed.[7]
[6]See Skalkos v T & S Recoveries Pty Ltd (2004) 65 NSWLR 151 at 153 [8].
[7]Yara Australia Pty Ltd v Oswal (2013) 41 VR 302; Williams v Ausnet Electricity Services Pty Ltd [2017] VSC 474 (Williams), [110].
The Court may be satisfied as to the amount of costs that is reasonable and proportionate, in any one of a number of ways.
As Moshinsky J observed in Camilleri,[8] the precision with which a court will require a plaintiff to justify the quantum of costs incurred for the benefit of group members will vary according to the circumstances of the case. Thus, “a very large costs sum might readily be approved in a settlement following a lengthy trial, while an apparently modest costs sum might require more exacting validation if it is associated with a modest sized proceeding and represents a significant proportion of the overall settlement sum”.[9]
[8]Camilleri v The Trust Company (Nominees) Ltd [2015] FCA 1468 (Camilleri).
[9]Camilleri, [53]–[54].
Sufficient evidence must be tendered so as to enable the Court to make an assessment as to whether the costs were reasonably and proportionately incurred.[10]
[10]Modtech (No 1), [34]–[35].
Evidence on this question commonly comes from an independent solicitor or costs consultant[11] or from an independent referee on a formal reference under the rules of Court; and at times with assistance from a contradictor.[12] Even where an independent expert is appointed it is, however, the Court and not the expert who is required to determine whether the costs are reasonable.[13]
[11]Erin Downie v Spiral Foods Pty Ltd & Ors [2015] VSC 190 (Downie), [179].
[12]See for example, Petersen at [124].
[13]Modtech (No 1), [35].
In Matthews,[14] Osborn JA observed (citing Re Medforce[15]) that the principles approving solicitor and client costs in this context are similar to those relevant to fixing a liquidator’s remuneration. There, at minimum, what is required is a statement of the work undertaken, together with an expenditure account sufficiently itemised to enable the charges made to be related to the work done.[16]
[14]Matthews v AusNet Electricity Services Pty Ltd & Ors [2014] VSC 663.
[15]Re Medforce Healthcare Services Pty Ltd (in liq) [2001] 3 NZLR 145.
[16]Matthews, [354].
It is recognised that a balance should be struck, affording the Court sufficient information to discharge its function, without the assessment itself significantly diminishing the corpus of the settlement funds.[17]
[17]Downie, [197].
What is reasonable and proportionate will vary from case to case. Factors commonly considered in this assessment include:
(a)the reasonableness of the terms of the fee agreements and whether the costs actually charged have been calculated in accordance with those agreements;
(c)whether any significant portion of the fees charged have been inappropriately or unnecessarily incurred;
(d)whether the work in a particular area or in relation to a particular issue was undertaken efficiently and appropriately;
(e)whether the work was undertaken by a person of an appropriate level of seniority and whether the charge out rates were appropriate having regard to the seniority of the practitioners and the nature of the work undertaken;
(g)whether the tasks and associated charges were appropriate having regard to the nature of the work and the time taken to complete the work.[18]
[18]See, for example, Courtney v Medtel Pty Ltd (No 5) [2004] FCA 1406 (Medtel (No 5)), [61]; Modtech (No 1), [37]; Matthews, [350]–[352].
Considerations of this kind might be characterised as broadly reflecting the requirements of s 172 of the Uniform Law which applies to costs generally.
Ordinarily, the plaintiff’s costs of the proceeding will have been incurred and charged pursuant to an agreement between the plaintiff and his or her solicitors. Often, the plaintiff’s solicitors will also have entered costs agreements with at least some group members. Accordingly, those agreements will inform the assessment to be made by the Court on an application for approval of the costs of a representative proceeding, on settlement. A logical starting point for assessing the reasonableness of the costs claimed is to establish what costs have actually been incurred and pursuant to what terms.
However, costs agreements inform rather than determine the Court’s assessment of the quantum and nature of costs to be approved. The Court may consider the reasonableness of the terms of the costs agreements.[19] The considerations relevant to an exercise of the power to approve costs on a settlement of a representative proceeding are not limited to what is permitted by the costs agreement.[20] The question remains whether in the Court’s assessment the costs are reasonable and proportionate. The costs agreement may itself assist in evidencing reasonableness.[21]
[19]See for example, Medtel (No 5), [61]; Matthews, [350].
[20]See Petersen at [113], [117].
[21]See s 172(4) of the Uniform Law.
Those observations are subject to the proviso that legal costs and costs agreements are regulated by Part 4.3 of the Uniform Law. Accordingly, aspects of that law may become relevant on an assessment of this kind.
Evidence
Ms Debra Paver is an accredited costs law specialist who has practised solely as a costs lawyer for 15 years. On 29 November 2019, I made orders appointing Ms Paver as an expert to inquire into and report to the Court as to whether the plaintiff’s claimed legal costs up to and including the hearing of the application for approval, and of the administration of the settlement distribution scheme were fair and reasonable as to the work done and the amounts claimed. Ms Paver filed reports of her assessments dated 6 December 2019 and 17 February 2020 (the First and Second Reports).
In evidence before me were Ms Paver’s reports, and a number of affidavits of the plaintiffs’ solicitor, Ms Kathryn Emeny.
Ms Emeny deposed to having instructed Ms Paver in accordance with the Court’s direction. I am satisfied that Maddens’ role in so doing was limited to the provision of information to Ms Paver, including by providing access to their files, and that Ms Paver performed her work independently, and not as an advocate for Maddens.
Ms Emeny described the significant events in the litigation and aspects of the work undertaken by Maddens in conducting and resolving the proceeding.
In support of the claim for costs the plaintiff and Maddens relied upon the report of Ms Paver. That is, they did not advance any separate or different assessment of the costs that ought be allowed in respect of the proceedings.
Costs Agreements
Following orders for class closure 91 group members registered to participate in the proceeding. The plaintiff and 62 of the registered group members signed conditional costs agreements with Maddens, under which they agreed that the plaintiff’s costs would be deducted from any settlement sum in priority to the distribution of payment to group members. The costs agreements were in standard terms – meaning that the terms were the same for the plaintiff and each of the group members. The agreements were varied when the plaintiff and group members each executed a revised form of the agreement in and after July.
It follows that some group members were not bound by a costs agreement with Maddens.
Relevantly and in short, the agreements included provision for:
(a) Maddens’ professional fees to be calculated in accordance with the Supreme Court Scale;
(b) additional “allowances” which increased the amount allowed for professional fees as calculated on scale by cumulative percentages, namely an allowance of 5% of the value of the fees calculated on Scale, under item 17 of the Supreme Court Scale and pursuant to rule 63.48 of the Supreme Court (General Civil Procedure) Rules 2005 (Rules); a “loading” of 30% of the value of the professional fees calculated at Scale, pursuant to rule 63.34(3) and an uplift fee calculated at 25% of the total value of the professional fees, pursuant to s 182 of Uniform Law;
(c) disbursements as claimed by or paid to third parties;
(d) costs (as above) to be classed as either “common benefit work” (namely work done for the benefit of the class or sub-set of group members) or individual work. Only common benefit work is the subject of this application.
Certain aspects of the costs agreements are discussed below.
It is proposed that costs be shared between group members, regardless of whether they have retained Maddens. It is uncontroversial as a matter of principle that the cost of legal work done to conduct proceedings and achieve a settlement should be shared by group members as a whole.[22]
[22]See for example, Modtech (No 1), [24].
While the settlement distribution scheme is yet to be approved by the Court, no objection has been taken to the intended pro-rata distribution of the settlement pool between group members, calculated by reference to the respective value of each group member’s assessed loss as a proportion of the settlement pool. The settlement pool is the settlement sum less costs (common benefit legal costs including administration costs, and the plaintiffs’ reimbursement payment). Distributed in that way, costs will be deducted before the balance of the settlement sum is distributed group members.
I consider that it is fair and reasonable that costs be shared in this way.
Consideration of Ms Paver’s Assessment
In accordance with the direction by which she was appointed, Ms Paver assessed the reasonableness of the costs claimed by the plaintiff, taking as her starting point the work performed as evidenced by Maddens’ records, and the costs agreements pursuant to which the work was done.
On the question of Maddens’ contractual entitlement to legal costs Ms Paver analysed the costs agreements between Maddens and the plaintiff. Her opinion was that the costs agreements did not comply with certain requirements of the Uniform Law and that as a result, the agreements were void. As Ms Paver correctly opined, where a valid costs agreement does not exist, the law practice is still entitled to their fair and reasonable legal costs for the work done and disbursements incurred.[23] Ms Paver went on to determine the amount of costs that she considered to be fair, reasonable and proportionate.
[23]Noting that Uniform Law s 178(1) provides that where a cost agreement is void by reason of a contravention of the disclosure obligations of Part 4.3, the client is not required to pay until the costs have been assessed, or until any dispute has been determined.
The implication of the conclusion that the costs agreements were void, for Ms Paver’s assessment, was two-fold. First, the assessment excluded the 25% uplift that had been claimed in the costs agreements in reliance on s 182 of the Uniform Law, as recompense for the fact that Maddens had conducted the action on a conditional basis.
Second, as noted above, the costs agreements had included allowances (cumulative percentage increases on fees calculated on the Supreme Court Scale) under rules 63.34 and 63.48, of 30% and 5% respectively. Ms Paver’s assessment included an allowance under rule 63.48 only, being an allowance for “skill care and responsibility”. On a taxation, such an allowance may be made by the Costs Court on a discretionary basis. Rules 63.34 and 63.48 are discussed further below.
Ms Paver’s view was that where there was no valid costs agreement, rule 63.34 was inapplicable, but there was no difficulty with the application of rule 63.48 given it is an item provided by the Scale itself, albeit on a discretionary basis. Ms Paver considered that an allowance of a 30% increase on Scale fees was appropriate. The question of allowances is further considered below.
Reasonable and proportionate costs calculated on scale
Leaving allowances to one side, I accept Ms Paver’s overall methodology as a sound basis on which to assess the amount of costs that is fair, reasonable and proportionate in the circumstances of this case.
Ms Paver’s assessment adapted a methodology that has been applied by some costs consultants assisting the court in other representative proceedings.[24] It proceeded in the following stages.
[24]See Matthews, [381]; Williams.
First, identifying from Maddens’ records, the work recorded and the time taken for that work. That process includes testing a sample of time entry records against Maddens’ file, as a result of which Ms Paver concluded that Maddens’ time records were accurate to a high degree.
Second, reviewing Maddens’ records to identify time spent on work that would not be recoverable as common benefit work or that was not reasonably incurred or reasonable in amount, and excluding those amounts. Deductions were made for items including records with errors and insufficient details; attendances for simple tasks likely to take less than six minutes but where time was recorded in units of six minutes; attendances involving a duplication of work by fee earners; internal meetings; administrative work such as file opening; work directed towards the commercial benefit of Maddens; work related to preparation and consideration of costs agreements; and file management that was purely administrative.
Third, identifying any work that was undertaken by a lawyer that did not require legal skill or knowledge in order to ensure that correct Scale rates were applied in step four.
Fourth, taking the results from the first three steps as “claimable” work, and applying the Scale attendance rates to the claimable work.
Fifth, applying reductions or discounts to the result in step 4 after considering whether the “claimable” costs were in fact proportionate and reasonable in amount.
For this exercise Ms Paver undertook sampling of the Maddens file on 10 dates over the course of the proceeding, considering whether the documents on the file substantiated the attendances and time claimed on the sampled dates. Her conclusion was that overall the level of record-keeping was of a high standard and that only a modest discount was warranted to take into account the small proportion of time not substantiated by the documents on the file. Entries that were identified as unsubstantiated were excluded from the time claimable.
Ms Paver considered the number and seniority of lawyers and non-lawyers assigned to the work required at different stages of the proceeding. For example, she observed that the core team that undertook the majority of the work comprised one principal, one senior lawyer, one lawyer and one law clerk and that legal assistants and one law student undertook the first pass review of discovered and subpoenaed documents. Work was appropriately divided between lawyers and non-lawyers.
As a separate measure of, or a reference point for proportionality, Ms Paver assessed the costs that would likely have been allowed had work undertaken reviewing documents, preparing and reading letters and emails and telephone attendances been charged at the specified Scale allowances for those items of work, rather than on an hourly rate basis. By that measure, the costs for those items were significantly greater than the costs in fact charged. However, Ms Paver did not separately consider whether separate charges for bulk or pro forma letters and emails would have been considered reasonable and proportionate, or whether it was reasonable and proportionate that costs be allowed for the review of the entirety of the 478,348 pages of documents produced. In that way, the utility of the reference point as a measure of proportionality is limited.
Sixth, applying a loading of 30% loading for “skill, care and attention” under item 17 of the Scale. This element of the assessment is considered separately, below.
Seventh, Ms Paver gave detailed consideration to the disbursements charged, reviewing the invoices and disallowing any that in her opinion were not fairly and reasonably incurred, and discounting any that were not reasonable in amount. Among other things, she specifically considered fees charged by counsel, the work done by them (including whether the time spent by counsel of different seniority was appropriate given the nature of issues in the proceeding), the appropriateness of the hourly rates applied and whether the invoices provided adequate detail of the work undertaken. Ms Paver noted that no more than two counsel attended and appeared on behalf of the plaintiff at interlocutory hearings and in the number of instances only one counsel attended. The preparation time for the hearing was modest. Expenses that ought to have been born by Maddens (which were minor in amount but which had included meals and telecommunication expenses) were excluded.
I am satisfied that the costs of the proceeding, as assessed by Ms Paver (that is, the costs calculated on the Scale, with the deductions allowed by her), were proportionate to the complexity of the issues and the amounts in dispute.
It is particularly relevant to this assessment that the plaintiff’s solicitors undertook a substantive assessment of the likely value of the damages claims at a relatively early juncture in the case, including in order to be prepared for a mediation. They were therefore in a position to assess the costs of work being undertaken in relation to the likely recovery. It is also relevant that that evidence discloses that opportunities to resolve the proceeding were properly pursued, in parallel with the preparation of the matter for trial. That was a necessary and appropriate course because it was, objectively speaking, apparent that the litigation was to be strongly contested. The engagement of a core team, of a relatively modest number of solicitors and non-lawyer staff and counsel, and the appropriate allocation of work between lawyers of different levels of seniority, are other indicia of proportionality.
It may be inferred that the plaintiff’s solicitors considered that it was necessary to perform the work at the time at which it was performed and that the assessments made along the way in that respect, were reasonable.
I accept Ms Paver’s assessment of the professional fees reasonably and proportionately incurred, as calculated on the Supreme Court Scale, with the deductions she has allowed. The total amount of professional fees allowed is $2,051,521.49.[25] That amount does not include any allowance for skill, care and attention. As discussed below, that allowance will require further consideration and will be determined once a supplementary report from Ms Paver has been received and considered.
[25] Ms Paver’s total is $2,666,977.95 including at 30% loading (First Report, page 44), which I consider
I accept Ms Paver’s quantification of reasonable and proportionate disbursements at $1,374,821.17.[26]
[26]First Paver Report, page 44 (counsel’s fees + other disbursements).
Allowances – Skill, Care and Attention
The Supreme Court Scale of Costs contains items which are discretionary and which, accordingly, may be allowed by the Costs Court on a taxation of costs. Item 17 is one such item. Entitled, “skill, care and responsibility”, it allows an additional amount for professional fees, having regard to the circumstances of the case including the factors enumerated in the item. Rule 63.48 deals with discretionary items allowed under the Scale. It provides that in exercising its discretion the costs Court shall have regard to the matters enumerated (namely the same matters as are set out under item 17). The allowance is typically calculated as a percentage of the total amount otherwise allowed for professional fees. The allowance is often described as a “loading”.
As noted above, Ms Paver’s assessment allows 30% for “skill, care and responsibility”. Although the rules make provision for that allowance on a taxation (as opposed to any other form of assessment), it is appropriate to have regard to that allowance in this assessment of the plaintiff’s fair and reasonable costs.
In concluding that an allowance of 30% should be made, Ms Paver had regard to a number of factors including her assessment as to the complexity of the matter, the number of group members and level of assistance they required, the different types of loss and damage suffered, the volume of documents discovered and subpoenaed, the number of appearances and the complexity of some procedural aspects of the litigation.
I readily accept that factors such as those are appropriate grounds on which to make an allowance for “skill, care and responsibility”. I do not consider that the fact that the action was widely reported in the media[27] is of itself, in the circumstances of this case, a matter that warrants consideration for the purposes of that allowance.
[27]Mentioned at paragraph [29(a)] of the First Paver Report.
There is one aspect of Ms Paver’s reasoning that requires clarification. Ms Paver’s First Report states, relevantly,
(a) at paragraph [28], “in this proceeding there is no litigation funder and Maddens have, in effect, ‘funded’ the litigation over the past two years and borne the risk that the litigation may not achieve a successful outcome. Such ‘no win, no fee’ arrangements enabled affected members who may not otherwise have the resources to participate in litigation. In my opinion, these matters are relevant to the s 172(2)(d) and (f) criteria and the determination of fair and reasonable legal costs”; and
(b) at paragraph [36], that (in substance) for a number of reasons a 30% loading is fair reasonable and appropriate and that, “this is particularly so, given that no uplift fee is being applied to the professional costs”.
It is not clear from the Report whether Ms Paver has included, in her calculation of a 30% loading, an allowance of some value for the costs or risk borne by Maddens when undertaking this action on a conditional or “no win, no fee” basis. The language at paragraph 36 suggests that may have occurred and is, at best, ambiguous. Ms Paver does not assign a particular monetary value to that factor or breakdown her assessment of the 30% loading.
If in fact, the loading has been allowed at a greater rate than would otherwise have been the case, in order to account for Maddens’ having assumed the risk of running the proceedings on a ‘no-win no-fee’ basis, that approach is impermissible.
That is because section 185(3) of the Uniform Law is to the effect that a law practice may not recover any part of an uplift fee where the conditional costs agreement that provides for the payment of the uplift fee does not comply with s 182. The basis on which Ms Paver’s assessment proceeds is that the costs agreements did not comply, and the recovery of the uplift fee was not permitted (as to which, see further below).
Section 172 of the Uniform Law provides that in considering whether legal costs are fair, reasonable and proportionate, regard must be had to whether the legal costs reasonably reflect a number of factors including –
“the circumstances in acting on the matter” (ss 172(2)(d)); and
“the retainer and the instructions … given in the matter” (ss 172(2)(f)).
Those sub-sections must be read within their statutory context. That context includes the prohibition, in s 185(3), on law practices recovering uplift fees in circumstances other than where they are recovered pursuant to a compliant costs agreement.
It also includes s 172(3) which provides (relevantly and in substance) that in considering whether legal costs are fair and reasonable, regard must also be had to whether the costs conform to any applicable requirement of Part 4.3; and ss 172(4)(b) which provides that a costs agreement is prima facie evidence that the legal costs disclosed in it are fair and reasonable if the costs agreement does not contravene and was not entered into in contravention of any provision of Division 4. Section 185 is part of Division 4.
It is sufficiently clear that any allowance for fees that amounts to a de facto recovery of an uplift fee, where the fee is unrecoverable by virtue of the Uniform Law, cannot be considered to be a fair and reasonable allowance within the meaning of s 172 of the Uniform Law. Furthermore, section 172(d) and (f) cannot be read as permitting what is forbidden by s 185(3).
Accordingly, if the 30% allowance calculated by Ms Paver does in fact include some provision for the risk assumed by Maddens when it agreed with its clients to conduct the action on a conditional basis, it must be re-calculated. The Uniform Law makes plain that lawyers who act on a conditional basis are entitled to be rewarded by an uplift fee, but only if they do so in compliance with the conditions of disclosure (including fee estimates) set out in the Law. While it is true that group members have been afforded access to the proceeding by Maddens acting conditionally, as Bell J observed in Russells[28] (considering earlier legislation in a relevantly identical form), the legislature has, by these provisions, emphatically signalled the importance of compliance by legal practitioners with the disclosure requirements including those relating to uplift fees.
[28]Russells v McCardel [2014] VSC 287 (Russells) [16].
Finally on the question of the applicable percentage allowance, I note that reference is made in Ms Paver’s report to the decision of Wood AsJ in Williams[29] in which allowances of 30% and 5% were made under rules 63.34(3) and 63.48 respectively. That case was a class action in which damages arising out of bushfire were pursued. Although it is understandable that practitioners will seek guidance from earlier cases, it should not be thought that any case establishes a benchmark or informal tariff for costs in similar cases. Each case is different.
[29]Williams.
Having regard to the issues discussed above concerning the conditional costs arrangements, I direct that the plaintiff obtain a supplementary report from Ms Paver assessing the appropriate allowance for skill care and responsibility under rule 63.48 (as reflected in item 17 of the Scale) including in respect of costs incurred in seeking approval of the settlement (see paragraph 83 below). I do not require an explanation of this aspect of the First Report. Rather, the appropriate percentage for the allowance should be considered afresh by Ms Paver, with supporting reasons, taking into account the matters decided in this judgment.
For completeness, I note that while I agree with Ms Paver that the appropriate context within which to consider an additional allowance for professional fees is item 17 of the Scale and Rule 63.48, and not Rule 63.34(3), I do so for somewhat different or additional reasons to those expressed in the Report.
Rule 63.34 relevantly provides:
(1)Subject to paragraph (3), a legal practitioner for a party to whom costs are payable … shall be entitled to charge and be allowed costs in accordance with the Scale in Appendix A unless the Court or the costs Court otherwise orders.
…
(3)the Court may, on special grounds arising out of the nature and importance or the difficulty or urgency of the case, allow an increase not exceeding 30% of the legal practitioner’s charges allowed on the taxation of costs with respect to –
(a) the proceeding generally; or
(b) any application, step or other matter in the proceeding.
…
The principles governing the application of rule 63.34(3) are summarised in the judgments of Hayne J in Jenkins[30] and of the Full Court in Tabone[31] (approving Jenkins) and were, more recently, applied by Beach J in Thomas v Powercor (No 9),[32] also a class action arising out of a bushfire. As the authorities make clear, it is not sufficient that the case in question be demonstrated to be difficult, complex or “heavy”. The language of the rule must be observed: there be special grounds arising out of the nature and importance or difficulty of the case, to justify an increase on the costs otherwise to be allowed. The rule is commonly described as permitting a “complexity loading”, but mere complexity (or difficulty, urgency or importance) will not itself suffice to permit the exercise of the discretion conferred by the rule. A “special” factor must arise. What may constitute a special factor will vary from case to case.
[30]Jenkins & Ors v G J Coles & Co Ltd [1993] 1 VR 155.
[31]The Mayor Councillors and Citizens of the City of Warrnambool v Dean Tabone (Supreme Court of Victoria, Fullagar, Brooking and Marks JJ, 25 August 1992) (Tabone).
[32][2012] VSC 209.
As Marks J explained in Tabone, the increase permitted by the rule is not a bonus for legal work well done in difficult circumstances. It is not to be disembodied from the costs actually incurred. It is to apply only when the Court is satisfied of the existence of a relationship between the special grounds which arise, and the costs which are not in the circumstances fairly or adequately recoupable under the Court Scale.[33]
[33]Tabone, 10.
I do not consider that “special grounds” have been established in this case. True it is (as I have said above) that the nature of the case is such as to warrant an allowance for skill, care and responsibility, including because of the complexity of the matter and the number of clients with whom Maddens was required to deal. However, the attributes of the litigation itself are not suggestive of a serious degree of complexity, difficulty, novelty or importance that might establish special circumstances. The proceeding settled a few days into a trial fixed to run for three weeks. The plaintiff intend to call three expert witnesses and eleven other witnesses including on technical matters. There was a significant volume of documents but there was no suggestion of any particular difficulty with the discovery process or any impact on the ability of the plaintiff to fairly or properly conduct the trial notwithstanding the volume of material. There is no apparent relationship between any special circumstance and any inadequacy of costs calculated on Scale.
Conditional fee uplift
As noted above, Ms Paver concluded that the Maddens costs agreements did not comply with s 182(3) and as a result, no uplift fee was recoverable, by operation of s 185(3). Section 182 of the Uniform Law provides that:
(1)a conditional costs agreement may provide for the payment of an uplift fee;
…
(3) a conditional costs agreement that includes an uplift fee –
(a)must identify the basis on which the uplift fees to be calculated; and,
(b)must include an estimate of the uplift fee or, if that is not reasonably practicable – (i) the range of estimates for the uplift fee; and (ii) an explanation of the major variables that may affect the calculation of the uplift fee; or
(4)a law practice must not enter into a costs agreement in contravention of this section or of the Uniform Rules relating to uplift fees.
Civil penalty: 100 penalty units
An examination of the first version of Maddens’ costs agreement makes plain that it does not comply with section 182. Clause 8.1 of the agreement states that is not possible to estimate the uplift fee. Clause 8.2 sets out the variables that will affect the estimate of legal costs including the uplift fee. Clause 8.3 provides an estimate of legal costs (stated as a range). Clause 7.3 states that an uplift will be applied at the rate of 25% covering both individual benefit work and the client’s share of common benefit work. Even if the specification of a percentage and a base amount to which the percentage would be applied were capable of amounting to an estimate within the meaning of 182(3),[34] the Maddens agreement would not comply, because no base amount for professional fees is provided. The total legal costs specified as a single sum by clause 8.3 include at least professional fees and disbursements.
[34]See Russells at [39]–[4].
The second version of the Maddens costs agreement (executed by the plaintiff in July 2019) stipulated that the uplift fee was to be levied on work undertaken prior to entry into the agreement.[35] Unlike the first version of the agreement, it did provide an estimate of the value of the uplift fee, at least as calculated at the upper end of the range of legal costs specified.[36] The total cost estimates provided was the same as those set out in the original agreement. Accordingly, the estimate of the uplift fee in the revised agreement included an uplift fee in respect of work undertaken prior to the commencement of the revised agreement, meaning prior to the existence of a compliant agreement. No separate estimate was provided in respect of work undertaken pursuant to the revised agreement. It was not contended that the estimate in that form complied with the Uniform Law, and Maddens did not seek to recover any uplift fee. I therefore need say no more about this issue.
[35]Clause 7.3.
[36]Clause 8.3.
Costs of seeking approval of settlement and of administering settlement scheme
In her Second Report Ms Paver set out her assessment of the plaintiff’s reasonable costs incurred in the course of seeking approval of the settlement of the proceedings and in the administration of the proposed settlement scheme.
Although the settlement scheme is yet to be approved, it is reasonable that work has been undertaken to partly implement the scheme, given the matters ventilated in earlier hearings.
Ms Paver employed the same methodology as was applied to the assessment of costs incurred in connection with the conduct of the proceedings. For the reasons set out above I am satisfied that Ms Paver’s methodology is appropriate and that her assessment provides a proper basis on which to assess the reasonableness and proportionality of the plaintiff’s costs.
Ms Paver has allowed professional fees of $81,306.43 for work conducted to 4 February 2020 (inclusive of GST). That amount includes a “loading” of 30% on the professional fees for work connected with settlement approval (otherwise calculated on Scale with relevant deductions). For the reasons set out above, I will not at this time approve the 30% loading. Once Ms Paver’s supplementary report is received, I will consider and approve an appropriate amount for an allowance under rule 63.48. Accordingly, at this time I approve the amount of $63,838.85,[37] for professional fees incurred in connection with settlement approval and the administration of the settlement scheme.
[37]Professional fees for settlement approval + administration costs + GST.
Ms Paver has allowed the amount of $99,773.38 for disbursements. Disbursements have been scrutinised in the same way as those allowed in respect of the costs of the proceeding. I consider that the disbursements were reasonably incurred and I will allow them. I will also allow, as reasonably incurred, the costs of the preparation of Ms Paver’s first report at $60,000.
Anticipated Costs in the Administration of the Settlement Distribution Scheme
In her Second Report Ms Paver has allowed amounts for future costs necessary for the purposes of completing the application for approval of the settlement and in the administration of the settlement scheme. The amounts allowed are $32,215.13 and $39,281 for professional fees and disbursements in respect of settlement approval and settlement scheme administration respectively.
Whilst those estimates appear reasonable on their face, those items are subject to fluctuation, as the differences between the estimates provided by Maddens to Ms Paver for the purposes of her First and Second Reports reveal. Furthermore, it is likely that some additional costs will be incurred, above those estimated, in connection with recent directions made concerning the settlement approval process.
One matter requires specific mention. In an affidavit sworn on 19 December 2019 Ms Emeny said that in the event that interim distributions of the settlement pool were made, administration costs would likely double because the necessary administration tasks would be required to be completed twice. At that point settlement administration costs were assessed at $46,908.84. Ms Emeny therefore said that the addition of one interim distribution would result in administration costs increasing to approximately $94,000. That evidence was evidently given in response (and in opposition) to the possibility, raised by the Court, that in view of the need to determine the issue the subject of the objection to the settlement scheme, an interim distribution may be appropriate.
The instructions given to Ms Paver for the purposes of each of her reports reveal that significant parts of the work to be undertaken in connection with the administration of the settlement scheme would not be required to be undertaken twice, in the event that the settlement pool is distributed in more than one round.
For example, each group member’s baseline damages entitlement (that is, the assessed value of their claim) is the basis on which their pro rata entitlement to a share of the settlement pool is to be calculated. Those assessments will serve to establish the relative entitlements of group members to the settlement pool. They do not need to be made twice. The results of the assessments can be applied more than once to calculate group members’ entitlements to each portion of the settlement pool that is distributed at any given time. It will not be necessary to apply for and obtain notices of charge from Medicare for each group member, more than once. It will not be necessary to prepare a claimant database more than once. It will not be necessary to attend to the approval of compromises in respect of minors, more than once.
Separate calculations for the distribution of the settlement pool, additional notices and cheque requisitions will be required for each distribution (if there be more than one distribution). I accept that some additional costs will be associated with additional distributions but I do not accept the proposition that the totality of the administration of settlement costs will be doubled, should two distributions occur.
In those circumstances, I will not at this time approve an allowance for future costs. Ms Emeny’s affidavits indicate that the administration process is likely to be concluded within a relatively short time after a settlement distribution scheme is approved. Subject to hearing from Maddens and the plaintiff, it may be appropriate for Maddens to reserve from the distribution of the settlement pool to group members (when it occurs, and whether it occurs in one or more tranches) an amount equal to the assessment made by Ms Paver, of future costs. Then, once all or substantially all of the settlement administration costs have been incurred and can be established as actual rather than anticipated costs (for example by an affidavit from the plaintiff’s solicitor) the costs can be paid. Directions about this issue will be made in due course.
The plaintiff’s allowance
The plaintiff seeks an order that he be paid $30,000 prior to the distribution of the balance of the settlement sum. This sum (described as a “reimbursement payment”), is intended to compensate the plaintiff for the time, inconvenience and personal burden associated with discharging his responsibilities as plaintiff.
It is accepted that it is appropriate to compensate representative parties in this way.[38] A conservative approach should be taken to the quantification of compensation of this kind, and a distinction should be drawn between time devoted by the plaintiff to work activities that benefit the group as a whole, as opposed to work that benefits the plaintiff’s personal claim. A claim of this kind must be based on adequate evidence.[39]
[38]See for example, Darwalla Milling Co Pty Ltd v F Hoffmann-La Roche Limited (No 2) (2006) 236 ALR 322 at 347, [76]; Matthews.
[39]Modtech (No 1), [65]–[72].
In this case Maddens estimated the number of hours that the plaintiff spent in attendances for the benefit of the group, including attending community meetings, mediation, trial, and numerous conferences convened to advance the preparation of the claim. Some attendances related to the plaintiff’s personal claim. The plaintiff’s solicitor explained in evidence in some detail, why time spent by Mr Lenehan in relation to the preparation of his personal claim was also, in some respects, undertaken for the benefit of the group as a whole. I am satisfied that some, but not all of those attendances can be classified as “group” work.
Ms Emeny’s evidence was that on numerous occasions Mr Lenehan communicated personally with group members who contacted him in relation to the proceeding. Separately, Mr Lenehan reported that he felt a significant emotional weight in assuming the responsibility of representing group members.
Allowances of this kind recognise, in a modest way, the non-economic burdens assumed by a plaintiff in a group proceeding and the corresponding benefit that the group, as a whole, receives, by virtue of the willingness of one person to assume the not insignificant responsibility of acting as a representative party.
The proposed payment to Mr Lenehan was notified to group members in the notice advising group members of the proposed application for approval of the settlement of the proceeding. No group members objected to the proposed payment (nor, for that matter, to any other aspect of the proposed settlement).
I approve the proposed payment of $30,000 to the plaintiff.
separately.
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